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2022 (6) TMI 1384 - AT - Income TaxTDS u/s 195 - remittance of amount to the co-broker in Singapore - assessee company is an Indian broker for placement of reinsurances placed with insurers domicile in India to work in conjunction with overseas brokers - reinsurance contract is between Indian insurers and the non-resident insurance companies - HELD THAT - From the perusal of the profit and loss account of the assessee, it is seen that it reflects only brokerage as its income. All the monies received by the Assessee from the Indian Insurance companies, i.e., Indian Cedents is held in a bank account which is classified as the Client Money Account and this is required to be maintained in accordance with Clause 27 of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2013 read with Schedule V thereto. The monies lying in this account are not assessee s money and the assessee is only the trustee of the monies as per IRDAI Regulations and hence the monies are not available to it. Monies in this account are to be paid to the NRRs either directly or through co-brokers not later than 2 weeks from receipt thereof. This account is reflected in the balance sheet of the Assessee with a corresponding liability Reinsurance Premium payable to Reinsurers and hence to assume that said premium is Assessee s income is fallacious. CIT(A) has rightly held that, when assessee is merely a broker and does not have any ownership on the premium amount transferred to NRR, then there was no liability to deduct TDS for remitting the said amount to the co-broker in Singapore. AO s contention that assessee is DAPE of AB Singapore - The assessee has earned brokerage during FY 2015-16 (AY 2016-17) from 275 transactions for doing brokerage business with various NRRs without any involvement of AB Singapore and hence, assessee cannot be recognised as DAPE of AB Singapore. Applicability of para 8 of Article 5 - As here it is not the case where assessee has any authority to conclude contracts on behalf of AB Singapore and conditions with respect to stock of goods are also not applicable. It is also not a case here that assessee secures order only on behalf of AB Singapore. Thus, Article 5 (8) is not applicable in the present case. Applicability of Article 5(9) - In any case, assessee is an independent broker under IRDAI and has earned majority of brokerage (73%) from NRRs without having any transaction with AB Singapore or involvement of AB Singapore. Its activities are not wholly or exclusively devoted to AB - financial statements of the assessee for the relevant financial year i.e. FY 2015-16 have been filed. This break up of its revenue was filed before the Ld. CIT (A) as additional evidence which has been accepted by CIT (A)- as seen that assessee received brokerage from more than 76 NRRs and majority of them without involvement of AB Singapore. Thus, the condition of Article 5(9) is also not satisfied. Thus hold Firstly, the assessee and AB Singapore are independent brokers facilitating payments between Cedants and NRRs. Secondly, the premium paid by the assessee to NRRs through AB Singapore is not the income of AB Singapore, but a remittance of funds received by the assessee from insurer AICI for onward transfer to NRRs. Thirdly, neither NRR nor co-broker AB Singapore have PE in India and thus, premium is not chargeable to tax in India. Lastly, the assessee received its brokerage income from more than 76 NRRs and not done work wholly and exclusively for AB Singapore and hence, assessee is not a DAPE of AB Singapore. Decided against revenue.
Issues Involved:
1. Liability for TDS on remittances to Aon Benfield Asia Pte. Ltd., Singapore under Section 195 of the Income Tax Act. 2. Determination of the payer under Section 195 and whether the assessee can be considered as an assessee in default under Section 201(1)/(1A). 3. Whether the assessee company acted as a dependent agent of Aon Benfield, constituting a Permanent Establishment (PE) in India. 4. Validity of the CIT(A)'s decision and whether it should be set aside in favor of the Assessing Officer's decision. Detailed Analysis: 1. Liability for TDS on Remittances under Section 195: The primary issue was whether the remittances made by the assessee company to Aon Benfield Asia Pte. Ltd., Singapore (AB) were liable for TDS under Section 195 of the Income Tax Act. The assessee, an Indian broker, facilitated the transfer of reinsurance premiums from the Agriculture Insurance Company of India (AICI) to various Non-Resident Reinsurers (NRRs) through AB. The Assessing Officer (AO) contended that the assessee should have deducted TDS on these remittances. However, the CIT(A) concluded that the assessee was merely a broker and did not have ownership of the premium amounts. The premiums were paid by AICI, and if tax was to be deducted, it should have been done by the insured (AICI) after examining relevant provisions of the Double Taxation Avoidance Agreement (DTAA) and other statutory provisions. The Tribunal upheld this view, noting that the remittances were not the income of AB but were passed on to NRRs, who did not have a PE in India and thus were not liable to tax in India. 2. Determination of the Payer and Assessee in Default: The AO held the assessee as an "assessee-in-default" under Section 201 for not deducting tax on the remittances. However, the CIT(A) and the Tribunal found that the assessee was not the actual payer of the premiums but merely facilitated the transfer. The actual payer was AICI, and the premiums were directly paid to the NRRs. The Tribunal noted that the assessee's income was only the brokerage received for its services, and the premiums collected were held in a "Client Money Account" as per IRDAI regulations. Thus, the assessee could not be considered an assessee in default for not deducting TDS on the remittances. 3. Dependent Agent and Permanent Establishment: The AO argued that the assessee acted as a dependent agent of AB, constituting a PE in India, thereby making the profits of AB taxable in India under Article 7 of the India-Singapore DTAA. However, the CIT(A) and the Tribunal found no evidence to substantiate this claim. The Tribunal noted that the assessee worked on a "principal to principal" basis with AB and also conducted transactions with other entities independently. The conditions for a dependent agent PE under Article 5(8) and 5(9) of the DTAA were not met, as the assessee did not have the authority to conclude contracts on behalf of AB and did not secure orders solely for AB. Therefore, the assessee could not be considered a dependent agent PE of AB. 4. Validity of the CIT(A)'s Decision: The revenue sought to set aside the CIT(A)'s decision and restore the AO's order. However, the Tribunal upheld the CIT(A)'s findings, noting that the assessee was not liable for TDS on the remittances, was not the payer, and did not act as a dependent agent PE of AB. The Tribunal also observed that the assessee's brokerage income was derived from multiple NRRs and not exclusively from AB, further supporting the conclusion that the assessee was an independent broker. Conclusion: The Tribunal dismissed the revenue's appeal, affirming that the assessee was not liable for TDS on the remittances to AB, was not an assessee in default, and did not constitute a dependent agent PE of AB. The premiums were not the income of AB but were passed on to NRRs, who were not taxable in India due to the absence of a PE. The decision of the CIT(A) was upheld, and the grounds of appeal raised by the revenue were dismissed.
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